Investing for the long-term is the right way to go with S&P/ASX 200 Index (ASX: XJO) shares.

We just don’t know what the share market is going to do next week, next month or even for the rest of the year. We can hope it’s going to go up in the short-term, but over the long-term share prices are more likely to do well if earnings rise.

So which ASX 200 shares will produce good returns? The bigger the business is, the harder it is to grow at a good pace. The law of big numbers makes it difficult to keep up the growth rate. That’s partly why I don’t want to invest in blue chip shares like Westpac Banking Corp (ASX: WBC) and Telstra Corporation Ltd (ASX: TLS).

But you can still find opportunities which are ASX 200 shares which are market leaders in their respective industries with good growth prospects. Here are three ideas:

Share 1: Bapcor Ltd (ASX: BAP)

Bapcor is the leader in automotive parts in Australia. It provides car parts and it also has a growing truck parts division. Burson and Autobarn are two of the biggest divisions. 

The Bapcor share price was severely sold off during the COVID-19 selloff. It fell 52% between 21 February 2020 and 23 March 2020. Bapcor decided to do a capital raising to strengthen the balance sheet. The ASX 200 share is in a well-capitalised position now.

FY20 year to date revenue to the end of February 2020 was strong with growth of 12.7% compared to the prior corresponding period. However, Bapcor said the trading performance in March was below expectations with revenue growth of 11.5% which includes the benefit of acquisitions but it was offset by the impact of COVID-19 restrictions.

The ASX 200 company’s share price has come storming back as restrictions lift. More people are driving again and this should benefit Bapcor as parts in cars fail in more normal numbers again.

Indeed, Bapcor could actually see more activity as people avoid public transport, using their cars to get around. New car sales are also down heavily, people are more likely to replace car parts than just buy a new car altogether.  

I’m also very excited by the prospect of growth in Asia as more outlets are opened there.

Share 2: Challenger Ltd (ASX: CGF)

Challenger is the market-leader of annuities in the country, it turns a retiree’s capital into a guaranteed source of income.

The ageing demographics of Australia is a strong tailwind for the ASX 200 share. The number of Australians over 65 is expected to increase by 32% over the next 10 years and 56% over the next 20 years.

Australia’s superannuation system is also a very powerful factor that should drive Challenger’s future growth. Most employees get a mandatory 9.5% contribution of their wage paid into their superannuation and the long-term tax benefits encourages everyone to add to their super funds.

Challenger currently has a grossed-up dividend yield of 9.5%. The dividend alone should produce decent returns if it’s maintained.

Low interest rates are a problem for Challenger, but hopefully interest rates will go back up again in a few years to a more normal level.

Share 3: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Patts is one of the best long-term ASX 200 shares in my opinion. It’s an investment conglomerate that invests in a variety of different businesses. It has already been going for over a century.

Some of the shares that it’s currently invested are TPG Telecom Ltd (ASX: TPM), Brickworks Limited (ASX: BKW), Clover Corporation Limited (ASX: CLV), Milton Corporation Limited (ASX: MLT) and Bki Investment Co Ltd (ASX: BKI).

The Soul Patts management team take a long-term, contrarian approach with the investments. I think that means it’s a lot easier to be long-term with this ASX 200 share too.

It’s always looking out for new opportunities to invest in. It recently invested in some agriculture assets and it’s now looking to invest in regional data centres. I think these are two attractive industries. 

Foolish takeaway

Each of these ASX 200 shares looks good value to me. I think they have good prospects over the next five years. In 2020 Bapcor may prove to be the best investment pick at today’s prices. But for the long-term I’d prefer Soul Patts with its diversification and defensive nature.

More reading

• Top brokers name 3 ASX 200 shares to sell next week
• Top brokers name 3 ASX 200 shares to buy next week
• Why the ultra-rich are hoarding gold
• 2 blue chip ASX 200 dividend shares to buy next week
• These were the best performers on the ASX 200 last week

Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia owns shares of and has recommended Bapcor, Brickworks, Challenger Limited, Telstra Limited, and Washington H. Soul Pattinson and Company Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that caught my eye are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

Commonwealth Bank of Australia (ASX: CBA)

According to a note out of Morgan Stanley, its analysts have retained their underweight rating but lifted the price target on this banking giant’s shares to $61.50. The broker believes that its retail business could struggle in the near term and suspects this could lead to a sizeable dividend cut or even a deferral. The Commonwealth Bank share price ended the week at $68.68.

InvoCare Limited (ASX: IVC)

A note out of the Macquarie equities desk reveals that its analysts have downgraded this funerals company’s shares to an underperform rating with a reduced price target of $10.20. Macquarie believes that InvoCare’s earnings could fall short of expectations in FY 2020 due to lower average case prices and social distancing initiatives reducing winter flu deaths. In addition to this, the broker suspects that it could be losing market share. InvoCare’s shares last traded at $11.36.

Treasury Wine Estates Ltd (ASX: TWE)

Another note out of the Macquarie equities desk reveals that its analysts have retained their underperform rating and cut the price target on this wine company’s shares to $9.30. The broker notes that consumers are turning their attention to value wines. It feels this shift to value could weigh on its margins in FY 2021. And while the reopening of restaurants should be a boost, it is concerned that Treasury Wine may have to discount its products to support its sales. The Treasury Wine share price ended the week at $10.69.

More reading

• Top brokers name 3 ASX 200 shares to buy next week
• Why the ultra-rich are hoarding gold
• 2 blue chip ASX 200 dividend shares to buy next week
• What is the price/earnings (p/e) ratio?
• 2 great value ASX 200 shares I’d buy next week

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia has recommended InvoCare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Last week saw a large number of broker notes hitting the wires once again. Three buy ratings that caught my eye are summarised below.

Here’s why brokers think investors ought to buy them next week:

A2 Milk Company Ltd (ASX: A2M)

According to a note out of UBS, its analysts have retained their buy rating and NZ$22.00 (A$20.63) price target on this infant formula and fresh milk company’s shares. The broker has been looking at industry data and believes a2 Milk’s market share has held firm. As a result, it suspects there is upside risk to its earnings guidance. In addition to this, it appears confident on the future thanks to price increases and a potential new product launch. I agree with UBS and would be a buyer of a2 Milk’s shares next week.

Afterpay Ltd (ASX: APT)

Analysts at Ord Minnett have retained their buy rating and lifted the price target on this payments company’s shares materially to $64.70. According to the note, the broker believes Afterpay is well-positioned to take advantage of the accelerated shift to online shopping. It suspects there could be almost 10 million active customers using its platform by the end of FY 2020. I think Ord Minnett is on the money with Afterpay and feel it could be a top long term option.

Premier Investments Limited (ASX: PMV)

A note out of the Macquarie equities desk reveals that its analysts have upgraded this retail conglomerate’s shares to an outperform rating with an improved price target of $20.11. According to the note, the broker believes that Premier Investments is well-positioned for growth thanks to its strong brands and growing online sales. I think Macquarie is spot on and Premier Investments could be a great option for investors looking to gain exposure to the retail sector.

More reading

• Top brokers name 3 ASX 200 shares to sell next week
• Why the ultra-rich are hoarding gold
• Which shares to buy if the ASX tumbles
• 2 blue chip ASX 200 dividend shares to buy next week
• How to become a millionaire in 25 years with $20 a day

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia owns shares of A2 Milk and AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Relying on dividend shares for a passive income in retirement may become an increasingly likely scenario for many people. Low-interest rates mean that income-producing assets such as cash and bonds may be unable to provide a sufficient income to cover living costs in older age.

Clearly, dividend shares are riskier than many other mainstream assets. However, through holding cash for emergencies and identifying high-quality businesses, it may be possible to rely on dividend shares for a passive income in retirement.

The risks of holding dividend shares

Dividend shares experience price fluctuations like any other asset. However, capital returns may not be the main priority of retirees. They may be more focused on the level of income received from their portfolio. This could prove to be unreliable due to the risks faced by the world economy.

For example, many income shares have decided to reduce or cancel their dividends in response to the uncertain operating conditions they now face. A retiree who holds such companies will now experience a fall in their income in the short run. Although dividends may return among businesses who have delayed or cancelled, there are no guarantees that this will take place.

Therefore, relying on dividend shares for a passive income is a riskier strategy compared to holding lower-risk assets. There is always a chance that dividend cuts will negatively impact on your level of income.

Low relative returns

The problem facing retirees is that, in most cases, dividend shares offer a far superior income return than other mainstream assets. Low-interest rates mean that cash and investment-grade bonds may provide an insufficient level of income. Since policymakers may attempt to support the economy’s recovery through a loose monetary policy, the prospect of higher interest rates seems limited.

Building a portfolio for dividend shares

Therefore, many retirees may find that they focus their capital on dividend shares in order to generate a sufficient level of income. Should this be the case, buying a diverse range of businesses could help to lower your risks. You will be less reliant on a small number of companies to provide a passive income in retirement.

Similarly, purchasing companies with defensive business models and sound finances could further strengthen your passive income. They may be better equipped to survive an economic downturn, and therefore less likely to reduce their dividend payments.

Investors may also wish to hold cash to provide support and peace of mind should dividend cuts be ahead. This would also provide financial resources to overcome challenging economic periods that limit dividend-paying shares over a period of time.

More reading

• Top brokers name 3 ASX 200 shares to sell next week
• Top brokers name 3 ASX 200 shares to buy next week
• Why I’d buy cheap stocks in today’s market
• Where I would invest $50,000 into ASX shares immediately
• How I’d invest in today’s market to make a million

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Buying cheap stocks after the recent market crash may not seem all that appealing to many investors. With the potential for a second wave of coronavirus across many of the world’s major economies, stock prices could come under further pressure in the coming months.

However, the past performance of the stock market shows that it has always been able to recover from crashes to post new record highs. Therefore, buying cheap stocks that have solid financial positions today could provide you with the greatest scope to benefit from a turnaround for equities over the long run.

Recovery potential

While a return to previous highs may not seem all that likely in the short run (despite the recent rally), over the long term it seems probable. The stock market has a strong track record of recovering from challenges such as the global financial crisis, the tech bubble and many other difficulties that have caused investor sentiment to weaken and cheap stocks to become more widely available.

Certainly, coronavirus is an unprecedented event for investors to overcome. It is still too soon to know how significant its impact will be on a wide range of sectors and economies. But previous downturns and bear markets have spawned the same uncertainties among investors. Yet, sentiment has always proceeded to improve after even the most severe declines in stock prices.

Buying cheap stocks

Many investors aim to buy stocks when they are low, and sell them when they are high. One of the main difficulties in implementing this strategy is that for a stock to be cheap, there often must be a significant risk ahead that prompts weaker financial performance or declining investor sentiment.

At the present time, many of the risks facing the world economy appear to have been priced in to stock valuations by investors. Therefore, it is possible to buy high-quality businesses while they are trading on low valuations. This could provide you with a more attractive risk/reward opportunity, since buying any asset at a lower price can provide greater scope for capital growth.

Although there is a risk that cheap stocks will continue to fall in price, over the long run many valuations on offer across the stock market suggest that a wide margin of safety may already be on offer.

Financial strength

Of course, for cheap stocks to deliver on their long-term recovery potential, they must survive a challenging short-term outlook. Therefore, it is vital that investors select companies that have attributes such as modest debt levels, dominant market positions and the right strategies to reduce costs if required in the short run.

Through buying the most appealing businesses while they trade on low valuations, you could boost your portfolio’s long-term growth prospects and improve your financial circumstances in the coming years.

More reading

• Where I would invest $50,000 into ASX shares immediately
• How I’d invest in today’s market to make a million
• Why ETFs are great for passive investing
• Where to invest $10,000 into ASX shares next week
• Why the ultra-rich are hoarding gold

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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